Herbalife (HLF) Beats on Earnings, in Talks With FTC

Shares of Herbalife Ltd. (HLF) were trading up +5.64 or +12.33 percent to $51.40 per share in Friday’s premarket after the company reported better than expected earnings for its fourth quarter yesterday after the market close. In addition to the better than expected earnings, the company also disclosed that it was in talks with the FTC “regarding a potential solution” to the regulator’s probe of the company.

Los Angeles, California based Herbalife Ltd was founded in 1980 and is a multi-level marketing company selling skin care and weight loss products in 87 countries through a network of 2.7 million independent agents. The company’s product line includes energy and fitness supplements, protein snacks and shakes and personal skin care products.

Herbalife has been the target of an FTC investigation into its marketing practices since March of 2014 after the company had been locked in a legal battle with billionaire investor Bill Ackman for over a year. Ackman accuses the company of running a pyramid scheme with only top salespeople making money while 90 percent of the company’s independent distributors earned nothing or lost money. The company has contested Ackman’s claims.

For the company’s fiscal 2015 fourth quarter, Herbalife reported earnings of $0.98 per share versus $1.21 per share for the same period one year ago. On an adjusted basis, Herbalife reported earnings of $1.19 per share on $1.1 billion in revenue. Analysts expected the company to report $0.94 per share on revenue of $1.06 billion.

The company stated that fourth quarter net income results were negatively impacted by adverse currency fluctuations to the tune of -$26 million and reported earnings by -$0.302 per share. Net sales fell -3.1 percent in the quarter as a result of currency fluctuations, but grew by 9.7 percent in local currencies. The company reported that volume points in the quarter increased by +5 percent, while active sales leaders grew +5 percent year on year. New orders per month increased to 2.2 million in 2015 versus 2.1 million in 2014.

Guidance was for first quarter revenue to decline -3 to -6 percent with earnings per share of $0.97 - $1.07. For the full 2016 year, sales growth of -0.5 percent to +2.5% and full year earnings per share of $4.05 -$4.50. Analysts expected guidance of -0.7% growth and earnings of $1.09 for the first quarter and +4.2 percent growth and earnings of $4.56 for the full year.

In addition to the earnings release, Herbalife indicated in a filing that the FTC probe on the company could be nearing its end. Herbalife said in the filing said that, “The company is currently in discussions with the FTC regarding a potential resolution of these matters” and that, “The possible range of outcomes include the filing by the FTC of a contested civil complaint, further discussions leading to a settlement which could include a monetary payment and other relief or the closure of these matters without action”. Nevertheless, the statement concluded saying, “At the present time, the company is unable to estimate a range of potential loss, if any, relating to these matters.”

Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.